Selling Shovels In A Gold Rush

An observation of the shovel sellers & the shovellers.

Figure Image



In some part of our lives, we’ve probably heard the phrase, “Selling shovels in a gold rush” or “During a gold rush, sell shovels.” This saying arose following the California gold rush of the mid-19th century when it became clear that few prospectors made money panning for gold while the suppliers who sold them shovels and picks profited nicely.

Conversely, in startup land, this means selling a piece of technology that is pivotal in the application or creation of whatever “gold rush” is happening at that given time.

Here are a few examples of sellers of shovels in the different technological revolutions (gold rushes) we have had:

Selling Shovels | Article | Table

As shown above, in history, we’ve always had shovel providers that have become ubiquitous with the technological innovation that they service and have generated trillions of value. But, we’ve also had the shovellers too who, unlike the shovellers panning for gold back in the 19th century, arguably have created just as much value as the shovel providers in aggregate.

Here are a few examples of shovellers in the different technological revolutions (gold rushes) we have had:

Selling Shovels | Article | Apps

The question that most startups & investors are probably asking themselves is, “Ok, what’s next?” For startups, they want to find unique problems to solve, while investors, on the other hand, want to find the next startups to invest in to generate outsized returns. Riding a technological revolution is the way for both to achieve this mission and make an impact.

From the above examples, we really see one thing - all these companies are successful and are worth millions and billions of dollars. If you were to create or invest in any of these above-mentioned companies, you’d be doing pretty well in life. However, the rules of capitalism mean you have limited resources and are rewarded for doing more with less.

That begs the question again, “Ok, what’s next?”

Let’s look at the Cloud revolution as an example.


Within the Cloud ecosystem, Cloud infrastructure companies (the shovel sellers) and Cloud applications (the shovelers) in software are two vital segments. Cloud infrastructure companies provide the necessary hardware, software, and tools for building Cloud applications, while Cloud applications in software encompass developing solutions to serve a certain user need.


Cloud Infrastructure Market Caps (The Shovel Sellers)


The market capitalization of cloud infrastructure companies has experienced substantial growth in recent years, driven by increased demand for cloud services and infrastructure. Cloud infrastructure companies provide the foundational hardware and software resources required to host and manage cloud-based services. These companies offer data centres, networking capabilities, storage solutions, and virtualization technologies. Major players in this segment include Amazon Web Services (AWS), Microsoft Azure, Google Cloud Platform (GCP), and IBM Cloud.

If we take AWS, Azure & Google Cloud and consolidate them, their total market cap would exceed $5 trillion USD.


Cloud Application Software Market Caps (The Shovellers)


Cloud applications in software refer to the software-as-a-service (SaaS) offerings that leverage cloud infrastructure to deliver a wide range of applications and services to end users. This segment includes companies providing cloud-based solutions for customer relationship management (CRM), enterprise resource planning (ERP), human resources (HR), collaboration, and other business functions. Prominent examples of cloud application providers are Salesforce, Adobe, Workday, and ServiceNow.

The market capitalization of cloud applications in software companies also experienced significant growth through this cloud computing revolution, reflecting the increasing adoption of SaaS solutions across industries.

An interesting comparison


This handy website here lists the largest software companies by market cap globally. What is interesting is that there are 389 companies listed with a total market cap of $10.32 trillion. With just the three alone, Google, Amazon & Microsoft make up half of this market cap. This makes sense, right? The sellers of shovels should be the most valued and take up the lion's share of the market.

You'd be correct; however, I think there is something important to highlight here:

Cloud Infrastructure companies (Amazon, Google & Microsoft)

Largest Cloud Software Companies globally

Market Cap

$5.3 trillion

$5 trillion

No. of companies




Now, if you were a betting person, you'd look at this table and put all your chips towards the cloud software companies instead of the cloud infrastructure companies. Probabilistically, it makes perfect sense since the odds of picking a successful cloud infrastructure company are significantly NOT in your favour. Conversely, if you manage to pick Amazon, for example, your return profile would be much higher than if you were to pick another software company.

However, it's not that straightforward, and I think we need to be cognizant that INFRASTRUCTURE COMPANIES COME FIRST before software application companies since you need to build on something to get started.

Ok, but how does this translate to the AI/ML revolution we see now?


We can take the learnings from the former cloud computing revolution and develop some hypotheses based on history. My predictions are:

  1. Like cloud computing, there will be a small number of companies that will become highly valuable in the market as leaders in AI/ML infrastructure. However, there will get to a certain point of critical mass and diminishing returns where newly formed infrastructure companies do not add as much value as being one of the first and leading ones - they'd have to be significantly better.

  2. The companies that are formed on top of AI infrastructure in this new world can be just as valuable as their predecessors in the cloud era.

  3. At the start, we are going to see significant investment pour into AI/ML infrastructure companies that are hoping to become the most dominant and ubiquitous.

  4. Once we get a clear indication of a widely used infrastructure company (could be OpenAI??) and we also see a prime example of an AI application software company becoming successful, investment will start trickling down to the application layer of companies.



All of this is to say that we are bullish on both ends of the spectrum and will invest in shovel sellers and those that do the shovelling. We see there is tremendous value in the creation of both.

If you are one of these companies tackling a hard problem in either camp, we'd love to hear from you.

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